Freight Regulation and Profitability: Can We Strike a Balance?

When it comes to imposing tougher rules on business, the state always seems to be in the vanguard. Strict limits on truck and ship emissions, for example, originated in California. So did reporting requirements on the presence of human slavery and trafficking in global supply chains, at least at the state level.

Transportation gets special attention from California regulators, and for good reason. It’s responsible for a third of the state’s nitrous oxide emissions, half its diesel soot and 7 percent of total greenhouse gas emissions, according to Cynthia Marvin, chief of the Transportation and Toxics Division of the California Air Resources Board. The state is plagued by the nation’s highest smog and soot levels, she said, resulting in its being granted special authority under federal law to cut pollution from mobile sources.

The very size of the industry ensures it will have a deep impact on the environment. In 2013, freight-dependent companies in the California accounted for more than $700bn in economic activity, and more than 5 million jobs. That’s roughly a third of the state’s economy and employment level, Marvin said.

Speaking at the recent Cargo Logistics America conference in San Diego, she said progress is being made toward achieving targets for cutting greenhouse gas emissions in the state. Nevertheless, “We need to get a lot more emissions reduction from the freight industry.” The focus, she said, should be on zero-emission technology and renewable energy sources.

The biggest culprits aren’t necessarily the most obvious ones. On the transportation front, it’s trucks that get most of the attention. That’s hardly a surprise, given their high visibility on streets and highways. Yet during the 11-day lockout of longshore workers at West Coast ports in 2002, the resulting fall-off in truck traffic on the main freeway serving Los Angeles and Long Beach harbors didn’t result in less pollution. On the contrary, Marvin said, Southern California’s air quality grew worse, because of emissions from the ships that were idling at the docks and offshore.

What regulators and industry need to pursue, said Marvin, is an “integrated solution.” She cited the state’s new Sustainable Freight Action Plan, enacted through executive order by Gov. Edmund G. Brown Jr. in July 2015. It gives multiple state regulatory agencies one year to come up with a joint plan that “establishes clear targets to improve freight efficiency, transition to zero-emission technologies, and increase competitiveness of California’s freight system.” More than a call for another report, the plan requires the agencies involved to initiate work on corridor-level freight pilot projects.

Regulators are often accused of ignoring the concerns of business when crafting new environmental rules. Note, however, that Brown’s statement specifically addresses the need to boost the competitiveness of the state’s freight providers. That can’t happen if the focus is solely on saddling companies with a higher cost of compliance.

Freight efficiency, the state’s regulators assert, is paramount. As part of the governor’s action plan, the California Department of Transportation has convened a freight-efficiency think tank, to be conducted under the auspices of the Institute of Transportation Studies at the University of California, Davis. Participants will include logistics providers, ocean carriers, railroads, truckers, ports, academics, public advocates and government officials.

So the question is posed: What will come of the effort? Will it result in a balance between environmental protection and the need for business profitability? Or will it collapse in rancor among parties with sharply differing agendas?

Some regulators, at least, claim to support the former outcome. Fran Inman, senior vice president of warehousing specialist Majestic Realty Co., also sits on the California Transportation Commission. In her role at CTC, “I am the self-appointed loud voice for freight, reminding my colleagues that we need to move goods efficiently,” she said at the Cargo Logistics America conference. “It’s important for all of us to be at the table.”

Rob Oglesby, executive director of the California Energy Commission, said his agency rarely even comes into contact with freight and logistics interests. Now, with Governor Brown’s marching orders in place, CEC is working with five of the state’s ports to install more efficient lighting and plugs for electric vehicles.

Mike Christensen, senior executive lead for supply chain optimization at the Port of Long Beach, said it’s the advent of new space-sharing alliances among ocean carriers, as well as the arrival of huge new containerships, that’s forcing ports to work together on ways to improve connecting infrastructure. Long Beach has joined with the Port of Los Angeles to form working groups aimed at devising ways to boost the efficiency of local freight movements. The prospect of global warming and increased pollution from future trade growth are forcing West Coast ports out of their traditional landlord roles, and into taking an active interest in larger transportation issues.

Industry appears cautiously optimistic about this untraditional marriage of commerce and government. Chris Shimoda is policy director for environmental affairs and industry research with the California Trucking Association. He pointed out that the governor’s executive order called for a balancing of needs, as the parties strive for the goal of zero emissions from transportation.

“As we’re trying to clear this very high hurdle, we’re not going to be able to do it in a sustainable manner unless we balance multiple objectives, including keeping California competitive,” Shimoda said. “It can’t be all pain and no gain.”

Efforts stemming from the freight action plan can be “a win for all parties,” said James Jack, executive director of the Coalition for Responsible Transportation, which represents shippers, carriers and ports. “This is something that can be achieved. We can see [efforts that] improve competitiveness while also reducing emissions.”

It’s a lovely idea, albeit one that goes against the grain of California’s regulatory history as it affects transportation. We’ll be watching closely, to see whether regulators and business can make common cause in the crusade to clean up the environment, without crippling freight’s ability to move efficiently and profitably.